KEPORT 


THE  LIBRARY 

t'-’  . 


OF  THE 


BOARD  OF  DIRECTORS 


OF  THE 


iouD  m 


TO  THE 


STOCKHOLDERS. 


December  31,  1887. 


General  Offices 


DUBUQU  E,  IOWA. 


REPORT 


OF  THE 


BOARD  OF  DIRECTORS 


OF  THE 


)itii«  ui  hi  Cilj  Railroad  Compai 


TO  THE 


STOCKHOLDERS. 


December  31,  1887. 


General  Offices  : 


DUBUQU  E,  IOWA. 


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^  'S 


DIRECTORS  AND  OFFICERS 


OF  THE 


)Blii(|oe  ai(l  Siii  Cilj  lailrdai 


F  O  Pt  18  8  8 


iV 


I  Ton.  W.  J.  KNIGHT,  President,  - 

E.  C.  WOODRUFF,  Esq.,  Vice-President, 

John  Anthon,  Esq., 

S.  V.  R.  Cruger,  Esq., 
Stuyvesant  Fish,  Esq., 

W.  D.  Guthrie,  Esq., 

E.  H.  Harriman,  Esq., 

H.  F.  Webster,  Esq.,  - 
Albert  Willcox,  Esq., 


•  -  Dubuque,  Iowa. 

Elizabetli,  New  Jersey. 

-  New  York. 

New  York. 

New  York, 

New  York, 

-  Chicago,  Illinois. 

New  York. 

New  York. 


Hon.  clarence  A.  SEWARD,  General  Counsel, 

\ 


\ 


To  the  Stockholders  of  the  Dubuque  &  Sioux  City  Rail- 
rocid  Company  : 

Your  i^resent  Directors  were  chosen  in  Sej^tember,  1887.  A  new 
President  of  the  Board  was  elected  in  the  place  of  the  President,  who 
resigned  as  a  Director  on  September  6,  1887,  and  who  had  been  Presi¬ 
dent  of  the  Board,  with  only  brief  interruptions,  if  any,  from  1864  to 
1887.  Other  new  officers  were  also  chosen  at  the  same  time,  and  about 
October  15,  1887,  the  Treasurer  and  Assistant  Secretary  received  from 
the  former  Assistant  Secretary,  besides  the  official  record  of  the  trans¬ 
actions  of  the  Board  of  Directors,  letters,  letter  books  and  other 
documents  relating  to  the  afifairs  of  the  Company.  At  one  of  the  earliest 
meetings  of  your  j)resent  Directors,  Clarence  A.  Seward,  Esq.,  of  the 
City  of  New  York,  was  apq)ointed  to  be  General  Counsel  of  the  Com¬ 
pany. 

More  than  twenty  years  ago,  and  on  Sejitember  27,  1866,  a  lease  for 
forty  years  of  the  Cedar  Falls  &  Minnesota  Kailway  having  been  ten¬ 
dered  by  that  Company,  was  accepted  by  the  then  President  of  this 
Company  under  circumstances  to  be  hereafter  referred  to,  and  there¬ 
after,  on  September  13,  1867,  your  Kail  way  was  leased  to  the  Illinois 
Central  for  the  term  of  twenty  years.  An  option  was  therein  given  to 
the  lessee  to  renew  the  latter  lease  in  peiqietuity.  The  Illinois  Central 
therein  agreed  to  assume,  for  twenty  years,  that  lease  of  the  Cedar  Falls 
k  Minnesota  to  your  Company. 

It  is  set  forth  in  the  book  containing  the  proceedings  of  your  Direct¬ 
ors  that  in  March,  1887,  more  than  six  months  before  the  expiration  of 
the  lease,  the  Illinois  Central  gave  to  your  President  due  and  sufficient 
notice,  as  prescribed  in  the  lease,  of  its  election  to  surrender  your  Kail¬ 
way  on  October  1,  1887,  and  to  demand  payment  for  improvements  as 
therein  provided.  Your  Kailway  was  so  surrendered  by  the  Illinois 
Central  on  October  1,  1887,  and  has  since  been  operated  by  officers 
chosen  by  us. 

The  sum  of  the  several  amounts  which  the 
lessee  had  charged  from  year  to  year 
for  permanent  exj)enditures  on  your 


Kailway  was .  $914,928  42 

And  on  the  Cedar  Falls  &  Minnesota .  103,793  86 


SI, 018,722  28 


r 


In  the  lease  of  the  Cedar  Falls  &  Minnesota  no  provision  was  made 
with  respect  to  betterments.  Even  though  your  Company  may,  at  the  end 
of  the  term,  have  an  equitable  claim  for  improvements  made,  and 


although  it  certainly  can  then  remove  the  personal  jiroperty  and  the  roll¬ 
ing  stock,  none  of  which  belongs  to  tlie  Cedar  Falls  Company,  it  is  clear 
that  the  Illinois  Central  Comj^any  had  no  such  claim  as  your  sub-tenant, 
nor  was  any  such  claim  made. 

The  lease  of  Sei^tember  13,  1867,  provides  that  “  no  account  is  to  be 
made  for  improvements  made  in  maintaining  and  operating  ”  the  Rail¬ 
way,  and  it  restricts  the  allowance  to  the  appraised  value  at  the  end  of 
the  term  of  “necessary  additional  side  tracks,  new  buildings  and  im¬ 
provements,  properly  chargeable  to  construction,”  and  to  the  first  cost 
of  real  estate  furnished  by  the  lessee  during  the  term.  An  appraisal 
made  by  Mr.  David  G.  Scott,  of  Dubuque,  acting  for  your  Company, 
and  Mr.  Leverett  H.  Clarke,  the  Consulting  Engineer  of  the  Lake  Shore 
and  Michigan  Southern  Railway,  acting  for  the  Illinois  Central,  re¬ 
sulted  in  an  award  for  betterments  of .  $518,590  81 

The  first  cost  of  real  estate  furnished  bv 

c/ 

the  lessee  during  the  term,  and  the 
appraised  value  of  other  real  estate 
since  bought  from  them  were .  150,486  29 


8669,077  10 


For  the  j)ayment  of  which  sum  in  one  year  from  October  1,  1887,  the 
obligations  of  this  Comj^any  have  been  given  to  and  accepted  by  the 
Illinois  Central,  and  all  transactions  or  agreements  arising  out  of  the 
lease  having  been  closed  and  performed  by  both  jiarties,  each  has  re¬ 
leased  the  other,  by  an  instrument  under  seal,  from  all  obligations 
thereunder. 

Immediately  on  entering  upon  their  new  duties,  your  Directors  made 
needed  traffic  and  business  arrangements  with  the  Illinois  Central,  the 
Iowa  Falls  &  Sioux  City,  and  other  comj^anies. 

Early  in  November,  1887,  the  Cedar  Falls  &  Minnesota  Company  de¬ 
manded  of  your  Company  89,447.50  as  rent  for  the  previous  month.  It 
is  believed  that  the  Cedar  Falls  &  Minnesota  Company  had  already 
claimed  the  same  rental  of  the  Illinois  Central  as  payable  by  that  Com¬ 
pany  under  the  lease  of  September  13,  1867,  which  demand  was  rejected. 
The  officers  of  your  Company  gave  immediate  consideration  to  the  oper¬ 
ation  of  the  Cedar  Falls  k  Minnesota  road  by  the  Illinois  Central,  while 


7 


in  its  possession,  and  also  to  a  comparison' thereof  with  the  operation 
under  the  lease  of  your  road  to  the  Illinois  Central.  They  found  the 
result  to  have  been  as  follows: 


Comparison  of  the  Results  obtained  from  Operating  the  D.  tfc  S.  C.  R.  R.  and 
the  C.  F.  d'  M.  R.  R.  under  Lease  of  Sept.  13lh,  1867. 

Twenty  Years — Od.  1,  1867,  to  Sept.  30,  1887. 


D.  and  S.  C.  E.  K. 

C.  F.  and  M.  R.  R. 

Proportion 
IN  Percent¬ 
ages  OF  the 

former. 

Length  of  Railroad  Oct.  1,  1867 . 

142.89  miles. 

14.00  miles. 

9.80 

“  «•  Sept.  30,  1887.... 

142.89  “ 

75.58 

52.89 

Average  length  operated . 

142.89  ” 

70.2693  “ 

49.17 

Equipment  owned: 

Engines . 

17 

None. 

Pass’r,  &c.,  cars . 

Freight  “  . 

14 

tt 

206 

<< 

Gross  Earnings — 20  years . 

$20,530,142  16 

$2,561,291  73 

12.47 

Yearly  average . 

1,026,507  11 

128,064  58 

12.47 

Yearly  average  per  mile  oper 
ated . 

7,183  90 

1,822  48 

25.37 

Operating  Expenses,  including 
Taxes  and  Permanents — 20 
years . 

10,629,427  98 

2,244,837  54 

21.12 

Yearly  average . . 

531,471  39 

112,241  87 

21.12 

Yearly  average  per  mile  oper¬ 
ated . . 

3,719  44 

1,597  31 

42.94 

Net  Earnings — 20  years . 

9,900,714  18 

316,454  19 

3.20 

Yearly  average . 

495,035  72 

15,822  71 

3.20 

Yearly  average  per  mile  oper¬ 
ated . 

3,464  46 

225  17 

6.50 

Rents— 20  years* . 

6,057,917  76 

2,108,080  00 

34.79 

Yearly  average . 

302,817  50 

105,404  00 

34.79 

Yearly  average  per  mile  oper 
ated . 

2,119  23 

1,500  00 

70.78 

Proportions: 

Expenses  to  gross  earnings. . . . 

Per  Cent.  51.77 

Percent.  87.64 

Net  earnings  to  gross  earnings . 

»  48.23 

“  12.35 

Rent  to  gross  earnings . 

“  29.50 

82.30 

Rent  to  net  earnings . 

“  61.17 

“  666.15 

*  Note. — The  totarreut  paid  to  the  D.  &  S.  C.  E.  K.  Co.  was .  $6,576,508  57 

Less  to  be  repaid  for  betterments  made  under  the  lease,  exclusive 

of  first  cost  of  real  estate .  518,590  81 

Rent  actually  reserved  by  lessor . . .  $6,057,917  76 


The  undertaking  by  your  Company  in  1866,  to  pay  a  minimum  annual 
rental  of  ^1,500  a  mile  for  a  railway  having  no  rolling  stock,  and  which 
did  not  in  any  one  of  the  three  years  last  past,  and  cannot  now,  earn  its 


8 


operating  expenses,  naturally  led  your  Directors  to  inquire  how,  and 
why,  such  an  onerous  and  improvident  lease  could  have  been  accepted 
by  your  Com2)any. 

This  (question  became  for  the  first  time  practically  important  to  your 
Company  by  reason  of  the  termination  of  its  lease  to  the  Illinois  Central 
and  the  consequent  throwing  back  upofl  your  Company  of  the  obliga¬ 
tion  of  the -annual  rental.  Your  Board  therefore  addressed  itself  to  the 
ascertainment  of  the  facts  and  circumstances  connected  with  the  origin 
of  the  lease,* and  with  the  following  result: 

On  an  examination  of  the  proceedings  of  your  then  Directors,  as  set 
forth  in  their  book  of  minutes,  it  aj^peared  that  in  1866  the  number  of 
your  Directors,  fixed  by  law,  was  nine,  but  at  the  meeting  of  the  Board 
which  accepted  the  lease  jDresented  by  the  lessor  and  authorized  its  ex¬ 
ecution,  only  four  of  the  nine  Directors  -were  present  in  person,  and  that 
the  votes  of  four  of  the  Directors,  who  were  not  present,  were  given  in 
favor  of  the  lease  by  a  proxy  held  and  exercised  by  the  then  President 
of  your  Company. 

At  the  time  the  lease  was  executed  the  President  of  the  lessee  Com¬ 
pany  and  the  President  of  the  lessor  Company  were  copartners  in  the 
business  of  supplying  the  Dubuque  &  Sioux  City,  the  Cedar  Falls  Sc 
Minnesota  and  other  railways  with  iron  and  supplies. 

A  further  inquiry  into  the  circumstances  under  which  the  lease  came 
into  existence  was  thereupon  committed  to  the  General  Counsel  of  your 
Comi^any,  who  advised  us,  among  other  things,  that  in  the  proceedings 
of  the  Directors  of  the  Cedar  Falls  &  Minnesota  Comj^any,  as  set  forth 

in  the  Minute  Book  of  that  Board,  it  appeared  that  at  the  date  of  the 

* 

lease,  (September  27,  1866,)  only  fourteen  miles  of  the  now  seventy-six 
miles  of  the  lessor  had  been  bnilt;  that  not  even  the  survey  had  then 
been  made,  or  the  right  of  way  acquired  for  the  remaining  sixty-two 
miles;  that  in  1866,  the  ownership  and  control  of  a  majority  of  the 
shares  of  the  lessor  were  in  the  hands  of  certain  “associates,”  who 
became  a  construction  Company  for  the  sixty-two  miles  afterward  built; 
that  the  six  persons  who  were  members  of  and  controlled  such  associa¬ 
tion  or  construction  ComjDany,  were  six  of  the  nine  Directors  of  your 
Company  in  1866;  that  members  of  the  association  or  construction  Com¬ 
pany  were  Directors  of  the  lessor  Com2:)any,  and,  as  such,  controlled  its 
affairs;  that  the  associates  voted  in  and  controlled  the  directory  of  each 
company;  and  that  the  lease  of  the  Cedar  Falls  Sc  Minnesota  was,  in 


9 


effect,  a  sale  of  the  railway  of  the  latter  for  forty  years  to  your  Company 
by  a  transaction  in  which  six  associates,  a  majority  of  your  Directors, 
sold,  what  was  substantially  their  own  property,  to  themselves  as  Agents 
and  Directors  of  your  Company. 

In  fixing  the  minimum  annual  rental  at  SI, 500  a  mile,  the  controlling 
consideration  could  not  have  been,  as  it  should  have  been,  the  earning 
capacity  of  the  leased  road,  but  was  the  sum  of  money  needed  to  pay  the 
interest  on  the  bonds  of  the  Cedar  Falls  &  Minnesota  Kailroad  Com¬ 
pany,  which  the  associates  had  issued,  or  were  preparing  to  issue,  to 
themselves,  which  rate  of  interest  was  7  per  cent,  per  annum.  To  pay 
such  interest  and  to  maintain  the  organization  of  the  Cedar  Falls  & 
Minnesota  Company,  required  the  annual  sum  of  about  ^113,370.  It 
was  secured  by  fixing  the  minimum  annual  rental  at  $1,500  per  mile, 
and  must  have  been  the  only  basis  upon  which  such  an  inordinate 
rental  could  have  been  arranged. 

The  opinion  of  our  General  Counsel  was  taken  on  the  question, 
whether  or  not,  upon  those  facts,  and  under  those  circumstances,  and 
after  an  expiration  of.  twenty  years  since  the  execution  of  the  lease,  the 
liability  of  your  Company  for  such  an  unconscionable  rental  thereunder, 
could  be  presented  for  judicial  inquiry  and  decision.  The  reply  was  in 
the  affirmative. 

On  being  thus  advised,  your  Directors  were  unwilling,  as  your 
Agents  and  Trustees,  to  appropriate  the  money  of  your  Company  to  pay 
such  a  rental  under  such  a  lease,  and  a  suit  was  forthwith  begun  in 
Iowa  by  this  Company  for  the  purpose  of  presenting  the  question  to  the 
Court  whether  such  lease  was,  in  its  inception  and  execution  and  char¬ 
acter,  a  valid  and  binding  obligation  upon  your  Company,  requiring  it 
to  pay,  for  the  ensuing  twenty  years,  the  annual  minimum  rental  re¬ 
served.  This  suit  is  now  pending,  and  will  be  pressed  to  an  early  deter¬ 
mination. 

The  lease  of  the  Cedar  Falls  &  Minnesota  Kailroad  to  your  Company 
provided,  as  has  already  been  stated,  for  the  preposterous  minimum  fixQd 
rental  of  $1,500  per  mile  per  annum  under  all  circumstances,  and  then, 
by  an  ingeniously  increasing  and  upward  sliding  scale,  it  was  contrived 
that,  under  no  circumstances,  could  the  proportion  of  gross  earnings 
reserved  for  rent  be  less  than  30  per  cent,  of  such  gross  earnings,  and  the 
further  sum  of  $625  per  mile  per  annum,  which  last  sum  would  alone  be 

per  cent,  upon  the  actual  cost  of  the  road.  Had  the  business  and  earn¬ 
ings  of  the  Cedar  Falls  &  Minnesota  been  equal  to  the  pretended  antici^ 


10 


pations  of  the  promoters  of  building  that  road  to  the  Minnesota  State 
line,  and  of  the  jn’ornoters  of  the  lease  to  your  Company,  the  result 
under  the  lease  would  have  been  even  more  injurious  to  your  Company, 
for  if  the  earnings  of  the  Cedar  Falls  &  Minnesota  llailroad  had  been 
equal  j^er  mile  to  those  of  the  Dubuque  &  Sioux  City  llailroad  (they  were 
scarcely  equal  to  one-quarter  thereof),  the  proportion  of  the  gross 
earnings  reserved  for  rent  to  be  paid  by  your  Company  would  have  been 
38 1*^0%  per  cent.,  and  the  rental  would  have  been  ^205,956  per  annum, 
and  that  for  a  piece  of  railway,  without  shops,  equipment  or  terminal 
facilities,  and  traversing  a  sparsely-settled  country. 

Early  in  the  year  1887,  the  then  Directors  of  your  Company  published 
a  Statement  containing  the  following: 

BALANCE  SHEET,  DECEMBER  31,  1886. 

Assets. 


Railroad  and  Appurtenances .  $5,621,112  71 

Iowa  Land  &  Loan  Co.  Stock . .  260,819  40 

Cash . .  457,461  62 


$6,339,393  73 


Liabilities. 

Capital  Stock .  $4,999,950  62 

Dividend  Scrip .  94  05 

Notes,  bearing  interest  at  5  per  cent.,  due  1888,  given  to 

retire  First  Mortgage  Bonds .  295,000  00 

7  per  cent.  MortgageBonds,  due  1894,  on  road  from 

Cedar  Falls  to  Iowa  Falls .  586,000  00 

Unclaimed  Dividends .  2,286  48 

Unpaid  Coupons .  2,553  24 

Income  Account . 453,509  34 


$6,339,393  73 


Between  the  date  of  that  Balance  Sheet  and  September  30,  1887, 
there  appear  to  have  been  distributed  to  the  Stockholders  of  the  Du¬ 
buque  &  Sioux  City  R.  R.  Co.  by  the  former  Directors: 


In  stock  of  the  Iowa  Land  and  Loan  Company 
And  in  cash . 


$249,980  00 
404,967  60 


/ 


11 

The  remaining  assets,  together  with  the  sum  of  ^70,385.82,  which 
was  paid  to  the  former  management  of  your  Company  on  September  1, 
by  the  Illinois  Central  R.  R.  Co.,  on  account  of  rent  will,  doubtless,  be 
hereafter  accounted  for  or  turned  over  by  the  former  officers. 

The  rent  due  by  the  Illinois  Central  R.  R.  Co.  to  the  Dubuque  & 
Sioux  City  R.  R.  Co.  for  the  nine  months  from  January  1  to  September 

30,  1887,  amounted  to .  S179,577  85 

Of  which  there  were  received  by  former  man¬ 
agement  . . . . . .  ^70,385  82 

And  by  present  management .  94  80 

^  - -  70,480  62 

Making  the  sum  due  this  Company  by  the  Illi¬ 
nois  Central  R.  R.  Co.  on  September  30, 

1887 .  $109,097  23 

At  that  date  three  months’  interest  had  ac¬ 
crued  upon  the  Bonds  of  your  Company, 
and  upon  Notes  given  in  extension  of 

Bonds  which  fell  due  in  1883 .  $13,942  50 

And  works  had  been  undertaken  by  the  Illi¬ 
nois  Central  Railroad  Company,  as  your 
lessee,  which  made  necessary  an  expendi¬ 
ture  for  betterments  of .  13,527  42 

-  27,469  92 

'  Leaving  the  available  cash  resources  Oct.  1, 

1887 .  $81,627  31 

The  surplus  income  of  the  Railway  for  the 
three  months  from  October  1,  1887,  after 
providing  for  the  interest  on  the  Debt, 

Rent  of  the  Cedar  Falls  &  Minnesota  R.  R. , 
if  due,  and  the  Dividend  of  1  per  cent, 
paid  December  31,  1887,  was,  as  will  be 


seen  from  detailed  statement  attached  ...  4,760  48 

Available  cash  resources,  after  paying  the  in¬ 
terest  due  January  1,  1888 .  $86,387  79 

By  order  of  the  Board, 


W.  J.  KNIGHT, 

Presidmt. 

EDWARD  P.  SKENE, 

Assistant  Sec7’eiari/. 

March  14,  1888. 


Dubuque  &  Sioux  City  Railroad. 

Earnings  and  Expenses. 

Three  Months,  October  1  to  December  31,  1887. 


D.  &  S.C.  R.  R. 
142  miles. 

C.  F.  &  M.  R.R. 
75  yjfff  miles. 

Both  Roads. 
218  jYd  miles. 

Gross  Earnings . 

$243,348  33 
137,383  53 

$27,313  38 
36,236  65 

$270,661  71 
173,620  23 

*  Operation  Expenses  &  Taxes . 

Excess  of  Earnings  over  Operation  Ex¬ 
penses  h  Taxes . 

$105,964  75 

$97,041  48 

Excess  of  Operation  Expenses  &  Taxes 
over  Earnings . 

$8,923  27 

*  This  includes  $236.97,  Permanent  Expenses  of  C.  F.  &  M.  R.  R. 


Application  of  Income. 

Three  Months,  October  1  to  December  31,  1887. 


Net  earnings  from  Traffic  of  D.  &  S.  C.  R.  R . 

Net  loss  from  Traffic  of  C.  F.  &  M.  R.  R.,  exclusive  of  rent. 


Available  Income  for  the  Quarter. 


Applied  as  follows: 

Quarters’  interest  on  debt,  Oct.  1  to  Dec.  31,  1887.  i 

Notes  IJ^  %  on  $295,000 .  $3,687  60 

Bonds  %  on  $586,000 .  10,256  00 


$105,964  75 
8,923  27 


$97,041  48 


$13,942  60 
28,342  50 
49,996  00 
4,760  48 


To  provide  for  rent  of  C.  F.  &  M.  R.  R.,  if  due. 
Dividend  December  31,  1887,  1  ^  on  $4,999,600. 
Balance  of  Income  carried  forward . 


